A large percentage of people aim at owning their dream home by taking a home loan. No doubt, it is by far the best route to have your house without consuming your savings. However, finding the best lender, applying for a home loan, and getting approval is a pretty arduous process. That is why we have brought you this complete guide on how to apply for a home loan in India. Read on to know the basics of a home loan and how to apply for it.
Important Terms You Will Come Across
These are a few crucial terms you must understand regarding home loan finance:
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Principal Loan Amount:
This is the loan amount you borrow from the lender.
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Interest Rate:
You have to repay the borrowed amount to the lender along with the interest. Most lenders offer floating rates of interest, applied annually.
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Loan Tenure:
Extending to several years, it is the period during which you have to repay your principal and interest cost. Most lenders offer tenures upto 30 years, depending on your eligibility & preference.
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EMIs:
EMIs consist of a percentage of your principal amount and interest rate. These are the monthly installments you must pay each month to get rid of your loan over time. Your EMI may also consider additional components such as insurance and service charges.
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- Down Payment: The lender lends a significant percentage (upto 90% depending on your eligibility) of the property’s price as a loan. You have to pay the remaining amount as a down payment.
Factors Affecting Your Home Loan Eligibility
Different lenders have varying eligibility conditions that applicants must fulfill to qualify for a home loan. These include the following:
Age: Home loan tenure goes up to several years. Lenders want the borrowers to be in their prime earning years during the entire loan term. That is why they have eligibility conditions related to the applicant’s age. They must have established a stable career at the time of loan application and should not cross their retirement age by the end of the loan tenure.
Income: Your income plays a crucial role in determining your home loan eligibility. Since loan EMIs would consume a major chunk of your monthly income, you must be earning enough to repay the EMIs conveniently. Lenders will also take into account existing EMIs / obligations to determine your eligibility.
Credit Score: Credit bureaus calculate your credit score based on your repayment history, credit length, credit portfolio, DTI ratio, credit utilization ratio, and other parameters. Ranging between 300 and 900, your score must be a minimum of 700 to apply for home loan finance.
Deciding Your Loan Amount
Lenders evaluate the property’s price you want to purchase and offer you a loan amount according to your eligibility. If you have a high credit score and low debt-to-income ratio, you may qualify for a higher loan amount. Use a home loan eligibility calculator to get an estimate of the maximum amount you may be able to borrow based on your repayment capacity. If you need a larger loan amount, consider adding a close family member with a good income and credit score as a co-applicant.
However, you should not borrow the maximum amount you are eligible for. Borrowing more than you need will affect your finances and make repayment harder. Besides that, you will end up paying an interest rate for the amount you did not actually require.
Therefore, while deciding your loan amount, calculate your savings to know how much down payment you can afford to pay conveniently. The more down payment you make, the less loan you will need to borrow. Consequently, you will be able to repay your loan sooner with easier EMIs and lower interest costs.
Selecting the Repayment Tenure
Most lenders allow their borrowers to select a repayment tenure suitable to their repayment capacity. A lengthy term reduces your EMI amount but increases the interest cost, while a brief tenure increases your EMI amount but reduces the interest cost. If you are confused about selecting your repayment tenure, use a home loan EMI calculator online to make an informed decision.
Home loan EMI calculator is an online tool that allows applicants to find a loan tenure with EMIs they can afford. Enter your principal amount, interest rate, and tentative loan tenure, and you will see your EMI amount on your screen. If you want to decrease or increase your EMI amount, adjust the loan tenure using the slider until you find the term with a perfect EMI.
Step-wise Procedure for a Home Loan Application
Pre-Assessment: Check your home loan eligibility, check your credit score, and select your lender.
Documentation: Gather the documents required for the home loan finance, including your salary slips, bank statements, IT returns, KYC documents, etc.
Application: Apply for a home loan online or offline.
Approval: Based on your eligibility, the lender gives you a loan offer with the loan amount, interest rate, loan tenure, and EMI. If you agree, accept the offer.
Disbursement: Once you accept the loan offer, the lender disburses the loan amount directly into your bank account.
Repayment: The repayment tenure begins immediately after the loan disbursal. Maintain a regular repayment history by paying your EMIs on time.
The above information will make your home loan procedure smooth and streamlined. Use a home loan EMI calculator online to select the best loan term and take a successful step towards becoming a homeowner.